Fake Trust?

Just the Facts: 
The national debt is borrowed from many sources and always has been. Once borrowed the money is spent—that's the point of it. But the U.S. government has always honored its debts and is still the safest investment. 

Is the national debt so big we can't pay it back? Compared to the size of our economy it's smaller than in World War II, and we paid it down after that. There is only one danger to social Security, and that's Congress.

Congress could decide not to let Social Security use its trust fund. Here's how. It could reduce Social Security benefits so much, that Social Security would never need the trust fund. But the Democrats have always supported Social Security, so that danger could only come from the Republicans.


The Whitehouse says:   There is no trust fund, just IOUs that I saw firsthand, that future generations will pay. –Bush, April 5, 2005     
• We take your payroll taxes; we pay out the benefits to the current retirees; and with the money left over, we pay -- pay for other programs. And there's nothing left but file cabinets with IOUs. –Bush, April 26, 2005     
• I went to West Virginia the other day to look at the filing cabinets, to make sure the IOUs were there — paper. And it's there. ... not a very encouraging sight. –Bush, April 18, 2005
• Now, about $1.7 trillion of that is in the so-called trust fund; that is, money -- that's money that's been collected that's not there as cash at this point. –Cheney, March 22, 2005

Hey, wait a minute!
 • What about the Federal Pension Trust Fund? It's just the same—all $800 billion of it. You mean there are no military pensions?!
 • What about the $280 billion in Medicare Trusts—are those fake?
 • And, the highway trust and all other government trusts? $3.1 trillion all told.

And what's their problem with "paper"? A thousand dollar bill is paper, the check I write, my stock certificate, my government bond—all paper. Did they expect the trust would be made of diamonds?

What of the millions of Americans who own Treasury bonds, all paper? Seven trillion dollars of national debt has been spent on government programs, and there is "nothing left." Has the US of A defrauded the world of $7 trillion?

When you put money in the bank you get paper, and they lend your money to someone who spends it. Your cash does not stay in the bank. Does Cheney really think the SSA should have a storeroom of cash? They're just trying to frighten the people.

There Is Only One Danger—Congressh
Congress could pass a law that Social Security Benefits will be cut in half from now on. TheSupreme Court ruled ruled that legal 40 years ago. If they did that, the SSA would never "need" it to pay benefits. So the contribution from all those millions of pay checks would be trapped in the Soc. Sec. Trust and never see the light of day—it may as well be stolen.

But What Congress Would Do That? Would the Democrats do that? Not on your life. Would the Republicans do that? Hmmm. They've always disliked Social Security. They are the ones saying the Trust is not real, it's just paper, it's just a burden, too bad it has to be paid back ...

Social Security has always had a Trust Fund, but in 1982 it was tiny, and Greenspan pushed for raising the low and middle-income payroll taxes which are putting billions into the Trust. Meanwhile Reagan and Bush have cut income taxes, mainly on the rich. The national debt goes up and they tell us—Hey, we're in debt, we can't afford to pay back that Trust fund.

Why rob Social Security?  That's where the money is !

 

Is It Safe?

Social Security has more than [#$2.5 trillion] in the "bank" for when Social Security first needs to withdraw funds.[#1] But the privatizers say that's when the trouble starts.

The CBO [under Bush] said the "bank" notes (really T-Bonds) might be "[#merely bookkeeping entries]" and the OMB says [#government trusts] aren't like private ones--they can change the rules on you.

Why would CBO and OMB be saying these things? Does someone want to stiff all of us who have been paying extra FICA tax for the past 20+ years?

It [#sounds like it], but would they [#renege] on Treasury bonds? No Republican president would dare, and no Democrat would want to. But they're talking about [#cutting benefits], and that works just as well.

See how the National Debt relates to Social Security.

Heritage Foundation's justification for raiding the Trust

On November 10, 2004, privatizers at the neoconservative Heritage Foundation confirmed the fears documented above in early 2004. The privatizers are counting on Congress and the President stealing the Trust Fund. In fact, that's just what they want.

"Some assert that the program’s trust fund will make up the shortfall, and therefore delay any tax increases or benefit cuts, until 2042. That is simply wrong. There is a trust fund, but it has no money in it -- and it never did. No money has ever been saved for future retirees. This means that the common myth that Congress and the president are raiding the trust fund is wrong also. As inventive as politicians are, even they can’t steal money that was never there in the first place."

—Brian Riedl and David John, Privatizers for the Heritage Fundation, in "Social Security’s Fictitious Trust Fund", November 10, 2004.

Consider What The Heritage Privatizers Said:

"money that was never there in the first place."
Our money certainly was "there in the first place." It came out of our pay checks and went to the SSA. They loaned it to the Feds and were given T-bonds in return. Just as if you bought a corporate bond.

"No money has ever been saved"
When you buy a corperate bond, what does the company do with that money? Save it? Never. The whole point of selling bonds is to spend the money. That's what corporations do!

"The trust fund will make up the shortfall ... That is simply wrong."
This means the government will, in effect, default on the T-bonds! Does Heritage think the government will default on the T-bonds sold to private investors? No. Do companies default on their bonds just because they spend the money? No. They either sell more bonds, earn some money, or sell stocks. But they have to pay it back.

Has the government ever paid back the Trust Fund before?
Yes. In many years before 1980 it did. Clinton, and all president from Truman through Carter reduced the National Debt compared to America's income, which makes it easy for the government to borrow again if it needed to in order to pay back Social Security.

So what's the big problem?
The problem is that under Reagan, Bush I, and Bush II, the government has been borrowing so fast that it knows it would be hard to borrow even more to pay back Social Security. The real cause of the problem is the Bush tax cuts, most of which went to the rich.

 

[#PopNotes Used Above]

[=$2.5 trillion]  Since the early 1980s, we've been paying extra to build up a surplus that will have over $3.5 trillion by 2012 and more in its peak year of 2022.  In 2018, the trust must withdraw the first dollar to help pay benefits.  But the privatizers say not to count on it (See quotes from the Trustee's report, 2003).
[=1] Baby boomers. Social Security is partly a pay-as-you-go and partly a save-for-the-future trust. As the baby-boomers retire, pay-as-you-go alone won't work because there will be fewer workers to pay in per retiree collecting.
[=merely bookkeeping entries] Are the T-bonds just 'paper'? The government has told generations that "promises made can and will be kept." But there's plenty of thinking about how to avoid it.  The trust surplus has been lent to the government in exchange for T-bonds (IOUs) and spent. Some point to the T-bonds and say we can treat them as "merely bookkeeping entries," or "paper transactions" with no real meaning.
[=government trusts] Is there a trust? Others point to the trust and say it's not really a trust that the government protects for Social Security.  It's just the government's money - and the government can do what it wants with it. the OMB has to say about trust funds.
[=renege] If the debt were re-paid. With the trust surplus, Social Security can continue to pay full benefits until 2042 (Page 2, The 2003 Annual Report of the Social Security Trustees).  
[=cutting benefits] In 2018, to pay 100% of promised benefits, the trust will need to cash in some T-bonds. If the government is short on funds, it can (1) renege on the T-bonds, or (2) cut benefits just enough so that the T-bonds aren't needed. Both methods have the same impact on Social Security checks. Method (1) is political suicide, so the plan is method (2), cutting benefits.
[=sounds like it] • There is no trust fund, just IOUs that I saw firsthand, that future generations will pay. –Bush, April 5, 2005    
• We take your payroll taxes; we pay out the benefits to the current retirees; and with the money left over, we pay -- pay for other programs. And there's nothing left but file cabinets with IOUs. –Bush, April 26, 2005    
• I went to West Virginia the other day to look at the filing cabinets, to make sure the IOUs were there — paper. And it's there. ... not a very encouraging sight. –Bush, April 18, 2005
• Now, about $1.7 trillion of that is in the so-called trust fund; that is, money -- that's money that's been collected that's not there as cash at this point. –Cheney, March 22, 2005
[=PopNotes Used Above] Just hover over links of this color to see them.

 

Quotes

Not a Real Trust Fund
Feb. 2000,
Office of Management and Budget (the White House)
"The Federal budget meaning of the term "trust," as applied to trust fund accounts, differs significantly from its private sector usage. In the private sector, the beneficiary of a trust usually owns the trust’s assets, which are managed by a trustee who must follow the stipulations of the trust. In contrast, the Federal Government owns the assets of most Federal trust funds, and it can raise or lower future trust fund collections and payments, or change the purposes for which the collections are used, by changing existing laws."
T-Bills Are Just Paper
Oct. 10, 2003
Congressional Budget Office (CBO)
"Computing the imbalance on the basis of "totals" implies that surpluses projected to occur early in the period will offset later deficits. But crediting surpluses to trust funds is simply a paper transaction."
Merely Bookkeeping Entries
Oct. 10, 2003
Congressional Budget Office (CBO)
"If those reserves merely represent bookkeeping entries, receipts for Social Security are projected to fall below the program's expenditures not in 2042 but in 2018; and for Hospital Insurance, in 2013 instead of 2026."
Worker's Savings Don't Earn Interest
Oct. 10, 2003
Congressional Budget Office (CBO)
"If, instead, those reserves and interest credits are viewed as spending authority and not as real resources (that is, as money that the government can draw on), the overall 75-year deficit--and the magnitude of the legislative change needed to eliminate it--will be considerably larger."h